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Gaining Visibility into Healthcare Workforce Management Cuts Costs

With labor costs accounting for up to 60 percent of hospital budgets, accessing healthcare workforce management data is critical to reducing costs.

April 24, 2018 - If it takes a village to raise a child, then it may take an entire city to operate a health system. From executives and clinicians to IT managers and front desk staff, healthcare workforce management involves hundreds to thousands of employees who all ensure their organization delivers high-value care to every patient who walks through the door.

Hospitals employed over 5.1 million individuals in March 2018, according to the most recent data from the Bureau of Labor Statics. With the hospital workforce being so large, labor is the largest driver of operating expenses at hospitals and health systems, accounting for up to 60 percent of total non-capital costs.

But some of these hospital labor costs are unnecessary, explained Chip Newton, Healthcare Sector Lead of LaborWise at Deloitte Consulting, LLP.

“A lot of clients don't initially believe me when I tell them this but it's true and it's very accurate. Every provider has, at a minimum, up to one percent of their total annual payroll as overspend that they can and should remediate,” he recently told RevCycleIntelligence.com.

“Think about that for a minute. You've got a billion-dollar payroll for a healthcare provider, which is pretty common for 10-, 12-, 15,000 employees. That's $10 million that they could be adding back to their margin and using for other programs.”

Hospitals and health systems are missing the opportunity to save millions of dollars because the organizations do not have real visibility into healthcare workforce management.

Many provider organizations use some type of healthcare workforce management system for timekeeping, scheduling, and labor budgeting. Or the organization uses a combination of systems to manage different components of healthcare workforce management.

“A lot of times, those were implemented 10 to 20 years ago at health systems and a couple of things have changed in the market,” he said. For example, antiquated healthcare workforce management systems have trouble responding to the recent growth in healthcare mergers and acquisitions.

“There's been so much consolidation that they don't have a clear picture of their entire workforce,” he remarked. “They may have the data in four different databases or they may have time management in one system, scheduling and labor forecasting in another system, and they don't talk to each other.”

“The systems were also implemented for compliance reasons only to make sure health systems were compliant with statutory wage regulations, not as a tool to help manage their workforce. There's a bit of a difference there,” he continued.

Without a clear window to look into labor costs, provider organizations end up overspending on seemingly minor areas, such as contingent workers or, even simpler, incremental overtime. Missed punches or canceled meal breaks translate to incremental overtime, which is paid a higher rate than an employee’s normal wage.

Additionally, ensuring hospitals and health systems employ their workforce efficiently may have fallen by the wayside because no one truly owns healthcare workforce management and data, Newton pointed out.

“It usually falls under finance, payroll, or decision support. Maybe even IT from an application perspective,” he stated. “But the reality of it is, every single one of those people are actually owners and have a stake in the outcome of how workforce is planned, scheduled, and paid, and how their compensation strategy approaches those resources.”

Newton is observing a recent growth in interest in healthcare workforce optimization among Chief Financial Officers (CFOs) and Chief Human Resources Officers (CHROs) as hospitals and health systems continue to engage in mergers and acquisitions.

However, two other C-suite executives should own hospital workforce management. Those executives are the Chief Nursing Officer (CNO) and Chief Operating Officer (COO), Newton said.

“The COO because, operationally, this is how you save the dollars, and getting visibility into the overspend has to happen at the ops level,” he contended. “It cannot happen at the administrative level and just hope for the best. And then, the CNO, the biggest lion's share of your population.”

The four C-suite executives should collectively own hospital workforce management and start to improve their staffing models and cut costs by analyzing transactional data, Newton recommended.

“Workforce systems are a wealth of information,” he remarked. “Transactional level detail is what you need to get out of time and scheduling systems so that you can see who is overspending, in what area, what employees are contributing to that overspend, and if you made the right decision, from a staffing perspective.”

Armed with transactional level data, healthcare workforce management owners can start to drill down into what areas or staff are creating excessive labor expenses using analytics tools.

“Start plugging that data into predictive analytic models that help give you visibility into your overspend and the context that surrounds it,” he said. “It's not just that you have an overtime problem, but you have an overtime problem because 40 percent of your overtime is incremental. It is canceled meal breaks from these ten employees.”

The data and analytics tools should particularly help to reduce labor costs associated with contingent workers. When healthcare organizations cannot fill a shift with employed individuals or the organization has a need beyond the skill set of their current workforce, leaders turn to staffing agencies and contingent workers for temporary staffing.

But these employees are oftentimes not tracked the same way as staff who are constantly on payroll and hiring contingent workers can quickly add up.

“Hospitals don't have an accurate picture of all of their contingent workers,” Newton said. “They tend to think of them as the float pool or the agency group.”

“I have some clients who track their non-employees in their workforce systems and they are contractually held to the same standards and policies that their employees are,” he continued. “That's good because when you actually get the invoice for whatever service was rendered, you can compare to the actual time spent, which believe it or not, a lot of providers do not do. Instead, they just pay the invoice. They don't look to see what the productivity was. They think that they just needed the skillset and let it go.”

However, gathering and analyzing workforce data can help those hospitals and health systems that don’t track their contingent workers like permanent staff to understand employee productivity.

“You can compare actuals against forecasts and hours per patient day. You can look at productivity numbers associated with whatever the workload was and whatever the acuity was for that particular shift or group of shifts that you're looking at from a staffing perspective. Then, look at what was the productivity level for those,” he said.

Understanding productivity levels will better inform the use of contingent workers, potentially cutting down on costs related to temporary employees.

“If they were to have a more holistic view of their contingent workers and all their non-employees, it would be a way for them to get some insights and visibility into some of those folks who should be employees,” he pointed out. “They should be because it's less expensive for the health system and probably better for them. Or maybe the system doesn’t need as many contingent workers as they think they do because they actually have some of these skills there.”

Once hospitals and health systems understand labor data and apply the insights from predictive analytics tools, the healthcare workforce management team should set targets for reducing labor costs and streamlining staffing, Newton suggested.

“What are the outcomes they need to achieve? How do they know when they achieve these metrics and they are being successful,” he asked. “It might be something like, ‘We need 95 percent productivity,’ or ‘We want 2 percent overtime system-wide.’”

“Whatever the answer is, they need to know what the end looks like and start putting those goals in front of themselves so that they can start the journey and know what path to take.”

Whichever path hospitals and health systems select to reduce labor costs and improve healthcare workforce management, gathering the data and using analytics tools can help organizations do more than walk down the long road to workforce optimization.

“That is a granularity level that most providers aren't looking at right now and that's where they need to get,” Newton said. “It's a bit of a journey though. They're not going get there tomorrow but they can get there quickly if they start focusing on those things.”